UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 21, 1998
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification Number
- ----------- ----------------------------- ---------------------
1-13739 UNISOURCE ENERGY CORPORATION 86-0786732
(An Arizona Corporation)
220 West Sixth Street
Tucson, AZ 85701
(520) 571-4000
1-5924 TUCSON ELECTRIC POWER COMPANY 86-0062700
(An Arizona Corporation)
220 West Sixth Street
Tucson, AZ 85701
(520) 571-4000
<PAGE>
Item 5. Other Events
On July 21, 1998, UniSource Energy Corporation (NYSE: UNS)
reported second quarter earnings of $1.1 million, or $0.03 per
share of common stock, for the quarter ended June 30, 1998. This
result compares to net income of $29.9 million, or $0.93 per share
for the same period in 1997. The second quarter earnings decrease
was primarily attributable to lower tax benefit recognition,
nonrecurring items, and lower retail sales due to mild weather
conditions at its principal subsidiary, Tucson Electric Power
Company (TEP), as well as startup costs of new unregulated energy
affiliates.
Second quarter 1997 results benefited from (i) a $15 million
net income tax benefit related to prior period net operating loss
(NOL) carryforwards which were recognized by the Company, and
(ii) a $10.2 million pretax reversal of loss provision resulting
from the dissolution of former investment subsidiaries. The
Company did not realize similar benefits in the 1998 second
quarter.
Despite steady retail customer growth of 1.8%, moderate
weather conditions contributed to TEP's retail sales being 3.6%
lower than in the prior year's quarter. As a result, TEP's retail
revenues decreased by $8.6 million, or 5.4%. Wholesale revenues,
however, helped offset the decline in retail revenues, growing by
$8.3 million, or 40.3%, in the second quarter. The stepped-up
activity in competitive bulk power markets resulted in a 38.4%
boost in total kilowatt-hour (KWH) sales to other utilities and
wholesale customers, and a related 10.1% increase in fuel and
purchased power expenses.
Retail electricity sales, however, have rebounded notably
over the past month. Beginning in late-June 1998 and continuing
into July, rising summer temperatures and increased humidity
returned to TEP's service territory. On July 14, TEP set an all-
time record for retail electricity sold in a 24-hour period,
distributing 32,960 megawatt-hours to its retail customers, a 3.9
percent increase over the previous record set in 1997. In
addition, on July 16, 1998, TEP experienced a new record peak
demand of 1,786 megawatts (MW), an increase of 7.7 percent over
the previous record of 1,659 MW set on August 10, 1997.
For the six-month period year-to-date, UniSource Energy's
total operating revenues improved slightly (1.0%) over the
comparable six-month period in 1997 due to an $11.8 million, or
29.6%, increase in wholesale revenues. Total kilowatt-hour sales
also increased 10.5% during this period, including a 2.9%
increase in retail KWH sales. Revenues from sales were offset
partially by a non-cash decrease in regulatory revenues of $8.1
million from the completion of the amortization of the MSR Option
Gain Regulatory Liability in May 1997.
For the 12 months ended June 30, 1998, the Company earned
$36.2 million, or $1.13 per average share of common stock. The
results compare to net income of $151.5 million or $4.72 per
average share of common stock for the same period in 1997. Again,
lower recognition of non-cash NOL tax benefits by $92.8 million,
or $2.89 per share, was the primary factor affecting the decline
in earnings.
TEP has refinanced $476 million of variable rate tax-exempt
debt with fixed rate debt and obtained a new bank facility over
the past 15 months. Consequently, total interest expense over the
12-month period ended June 30, 1998, increased $9.2 million (or
8.8%). The refinancings, however, have reduced TEP's exposure to
variable interest rates while assuring future interest payment
stability. In addition, the maturities of the debt were extended,
thus reducing refinancing risk and further improving liquidity.
UniSource Energy's unregulated affiliates reported 1998
second quarter losses totaling $5.7 million, or $0.18 per share,
compared to $0.5 million of net income, or $0.02 per share, for
the second quarter of 1997. Start-up costs associated with the
Company's expansion into additional regions of the country, and
other subsidiary development activities were the principal
factors affecting this year's results for the Company's
unregulated businesses.
<PAGE>
In addition to TEP, UniSource Energy's other subsidiaries
include New Energy Ventures, LLC, a buyer's agent, providing
electric load aggregation and advisory services to retail purchasers
of electric energy; Nations Energy Corporation, an independent
power developer; Advanced Energy Technologies, Inc.,
a developer of renewable energy and distributed generation
technologies; Southwest Energy Solutions, and SWPP Investment Co.
TEP Second Quarter Earnings
TEP recorded net income of $8.1 million for the second
quarter of 1998, compared with net income of $29.9 million in the
second quarter of 1997. The second quarter earnings decrease was
primarily attributable to lower tax benefit recognition,
nonrecurring items, lower retail sales due to mild weather
conditions, lower non-cash regulatory revenues and higher
interest expense from refinancings. Second quarter 1997 results
benefited from a $15.0 million net income tax benefit related to
prior period NOL carryforwards, and a $10.2 million pretax
reversal of loss provision resulting from the dissolution of
former investment subsidiaries. TEP did not realize similar
benefits in the 1998 second quarter. Earnings for the six-months
ended June 30, 1998 were $6.5 million, compared with net income
of $41.4 million for the same period in 1997. Earnings for the
six-month period were affected by the same factors as discussed
above for the second quarter.
<PAGE>
The following is a summary of UniSource Energy consolidated
results in thousands except per share data.
Quarter Ended June 30 1998 1997
- --------------------- ---- ----
Utility Operating Revenues $179,603 $182,970
Utility Operating Expenses $149,737 $149,140
Utility Operating Income $ 29,866 $ 33,830
Other Income $ 7,674 $ 22,977
Net Income (loss) from Unregulated
Energy Businesses $ (5,649) $ 487
Total Interest Expense $ 30,833 $ 27,393
Net Income $ 1,058 $ 29,901
Average Common Shares Outstanding 32,138 32,138
(000)
Basic Earnings per Share $ 0.03 $ 0.93
Diluted Earnings per Share $ 0.03 $ 0.93
6 Months Ended June 30 1998 1997
- ---------------------- ---- ----
Utility Operating Revenues $340,544 $337,251
Utility Operating Expenses $286,858 $282,631
Utility Operating Income $ 53,686 $ 54,620
Other Income $ 9,569 $ 39,213
Net loss from Unregulated
Energy Businesses $ (9,685) $ (445)
Total Interest Expense $ 59,547 $ 51,995
Net Income (Loss) $ (5,977) $ 41,393
Average Common Shares Outstanding 32,138 32,138
(000)
Basic Earnings per Share $ (0.19) $ 1.29
Diluted Earnings per Share $ (0.19) $ 1.29
12 Months Ended June 30 1998 1997
- ----------------------- ---- ----
Utility Operating Revenues $733,186 $720,563
Utility Operating Expenses $600,096 $592,606
Utility Operating Income $133,090 $127,957
Other Income $ 31,140 $130,354
Net Loss from Unregulated
Energy Businesses $(14,583) $ (2,486)
Total Interest Expense $113,445 $104,287
Net Income $ 36,202 $151,538
Average Common Shares Outstanding 32,138 32,138
(000)
Basic Earnings per Share $ 1.13 $ 4.72
Diluted Earnings per Share $ 1.12 $ 4.70
Comparisons of kilowatt-hour sales and revenues are shown below:
Quarter Ended June 30 Increase (Decrease)
Electric kWh Sales (000): 1998 1997 Amount Pct.
Retail Customers 1,819,112 1,886,216 (67,104) (3.6)%
Sales for Resale 1,036,756 749,074 287,682 38.4 %
Total 2,855,868 2,635,290 220,578 8.4 %
Electric Revenues (000):
Retail Customers $150,652 $159,249 $ (8,597) (5.4)%
Amortization of MSR Option
Gain Regulatory Liability 0 3,092 (3,092) (100.0)%
Sales for Resale 28,951 20,629 8,322 40.3 %
Total $179,603 $182,970 $ (3,367) (1.8)%
6 Months Ended June 30 Increase (Decrease)
Electric kWh Sales (000): 1998 1997 Amount Pct.
Retail Customers 3,609,421 3,508,657 100,764 2.9 %
Sales for Resale 1,886,888 1,464,261 422,627 28.9 %
Total 5,496,309 4,972,918 523,391 10.5 %
Electric Revenues (000):
Retail Customers $288,739 $289,186 $ (447) (0.2)%
Amortization of MSR Option
Gain Regulatory Liability 0 8,105 (8,105) (100.0)%
Sales for Resale 51,805 39,960 11,845 29.6 %
Total $340,544 $337,251 $ 3,293 1.0 %
12 Months Ended June 30 Increase (Decrease)
Electric kWh Sales (000): 1998 1997 Amount Pct.
Retail Customers 7,571,178 7,327,925 243,253 3.3 %
Sales for Resale 3,852,082 3,435,337 416,745 12.1 %
Total 11,423,260 10,763,262 659,998 6.1 %
Electric Revenues (000):
Retail Customers $623,774 $613,500 $ 10,274 1.7 %
Amortization of MSR Option
Gain Regulatory Liability 0 18,131 (18,131)(100.0)%
Sales for Resale 109,412 88,932 20,480 23.0 %
Total $733,186 $720,563 $ 12,623 1.8 %
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, each registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized. The
signature for each undersigned company shall be deemed to relate
only to matters having reference to such company or its
subsidiary.
UNISOURCE ENERGY CORPORATION
----------------------------
(Registrant)
Date: July 22, 1998
Karen G. Kissinger
----------------------------
Karen G. Kissinger
Principal Accounting Officer
TUCSON ELECTRIC POWER COMPANY
-----------------------------
(Registrant)
Date: July 22, 1998
Karen G. Kissinger
-----------------------------
Karen G. Kissinger
Principal Accounting Officer
